What is BlockFi?
It is a crypto finance company that was founded in the US in 2017. It offers its users the chance to deposit cryptocurrencies in their accounts and earn interest amounting to 8.6% per year. This is made possible by BlockFi lending users’ funds to various private and institutional borrowers. BlockFi gets an interest rate from them, and then pays its users their interest with those funds.
Users can also provide currency as collateral and then get access to borrowing that currency — up to 50% of the amount deposited. They can also instantly access their money and do not need to trade it. BlockFi also claims to have a “no fee” policy for crypto trading.
Cons of BlockFi
The most obvious negative aspect is the fact that BlockFi is a centralized company. This implies that all coins you own or trade on the platform are in its custody, which is dangerous because if BlockFi goes broke, you go broke. It also means that the account verification is strict and a lot of KYC (know your customer) information is needed.
Secondly, even though BlockFi claims that user deposits are prioritized and insured to reduce their risk, they are in fact not insured by either FDIC or SIPC. Furthermore, the fact that there are no fees has a negative side too, because exchange rates are reported to be sub-par compared to similar services.
Finally, the recent dispute around BlockFi and the negative reputation it has been getting lately are probably the largest downside, which we will cover later on.
Is BlockFi legit or hacked?
BlockFi used to be safe. It had customer support with a good reputation and was overall a stable platform for some time. However, it had a major breach in security in 2020. The larger tragedy was prevented because the users’ funds were kept safe, but some of their personal information got stolen. More detailed information found in the article Is BlockFi legit.
Recently, the service’s TrustPilot rating fell from over 4/5 to 3.3/5, and users are increasingly reporting serious issues such as:
- Being stuck in limbo during account creation or unable to withdraw funds because they got stuck somewhere in the process.
- Being unable to add crypto.
- More serious issues, such as vanished funds or misrepresenting terms of the agreement to users’ damage.
What did BlockFi do wrong and is now getting sued?
FTX is a cryptocurrency exchange that collapsed because its owner, Sam Bankman-Fried, was funding his private hedge fund with his customers’ funds from FTX deposits. As FTX was becoming more and more suspicious in the community, users tried to bail out and withdraw their funds, but they couldn’t, leaving thousands of people deprived of their accounts and money.
BlockFi’s terrible move was getting involved with FTX and getting a $400 million loan from the exchange as a desperate move in the declining coin scene of today. With FTX totally broken down, we have yet to see if this is also the end for BlockFi, but the future seems very dark. This went so far that BlockFi is currently considering declaring bankruptcy. Legal consequences are also to be determined, and BlockFi may expect harsher punishment than in a settlement they had to pay in February 2022 for violating security acts.
Why does BlockFi take so long to withdraw?
BlockFi’s terms of service and FAQ state that withdrawals can take from being instantly completed to up to seven days, and that your interest will continue to increase during the waiting time. However, since the recent FTX scandal, BlockFi made an official announcement on November 11, 2022, stating they are unable to operate in the “business as usual” manner, so they are limiting platform activity, including withdrawals, in order to protect their clients.
If you want instant withdrawals, it is best to go with crypto services with a lot of reviews and a high rating instead. Such is the Revolut app, with the rating of 4.3/5 and over 100,000 reviews on TrustPilot.
Conclusion
BlockFi itself advises users against depositing until the service’s status is resolved in the FTX affair. It had its upsides, but regardless, it is best to stay away from BlockFi for now and choose from hundreds of stable and proven crypto services.
